The primary purpose of this blog (Prithviraj Kothari - MD, RSBL | Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
This blog contains my opinion, which is not to be construed as investment advices.
Information provided in these blogs is intended solely for informative purposes and is obtained from sources believed to be reliable

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Monday, 2 July 2012

RBI MIGHT BAN BANKS FROM SELLING GOLD COINS

Akshaya Tritiya,
Diwali or Dhan teras….Banks will no longer give importance to these days for
sale of gold coins.

RBI is considering banning banks from selling gold coins.

A central bank source argues that imports ofGold Bullionare exacerbating the Rupee's weakness
against the Dollar, making a case for endingGold
Coinssales by banks. Banks were
allowed to sellGold Coinsfollowing a relaxation of rules on
commodities trading aimed at sterilizing Dollar inflows, which saw the Rupee
appreciate in the years before 2008. With the rupee depreciating 30% since August, and
hitting a new low this week, at 57.16 to a dollar, the apex bank is looking to
reverse the trend. At a recent meeting, bankers have been advised to go slow on
gold coin sales.

India is the world leader in Gold
consumption. Gold is seen as a safe haven for parking money given
the present gloom in the financial markets. A bulk of its demand is met through
imports which are putting stress on the current account deficit and the value
of the rupee.

As per Government of India,Gold as an investment has 2 issues. Firstly,
the investment is non-productive as gold is hardly used in industrial
production and it has contributed to the high current account deficit of the
country.Secondly, the foreign exchange
reserve that is used to import gold reduces the availability of this resource
to finance the import of other commodities.

Gold’s share in
total import bill of the country has gone up from 8.1 per cent in 2001-02 to
9.6 per cent in 2010-11. The percentage share of gold and silver combined has
risen from the 3rd most imported commodity in 2000-01 to the 2nd
most imported commodity in 2010-11 behind only crude oil.

RBI wants to generate immense awareness
amongst people to switch to other modes of investment. However, Some
experts believe the RBI's attempt at market manipulation will merely increase
the black market gold prices and speed up the decline of the Rupee when
compared to other assets like gold and silver.

Rather
than implementing new modes for curbing imports, the Government should promote
Bullion export in the country as it does for the jewellery. When Bullion is
exported, an extra 1.5% value charge is levied by the government on the
exporters. Moreover to redeem Duty, the exporters have to pay around a percent
to the banks.If a provision is
created in this case, then we could see an increase in Forex reserves by the
exports. Research & development is the key to the future of Indian bullion
industry. India holds around 9% of the global gold reserves estimated at 14,000
tonnes but fails to generate wealth out of it due to weak investment in
exploration and mining activities. As we know, India is one of the leading
consumers of gold and could challenge the likes of China and South Africa in gold
production provided the right policy decisions and enabling environment for
gold exploration and mining is put in place.

Indian households have nearly 25,000 to 30,000 tonnes of
Gold. Government should show an effective way to gain revenue by exporting it.
Schemes like minimum tax scheme should be introduced wherein an investor is
charged minimum tax to convert his/her unaccounted gold into an accounted one.
By this the government treasury will also increase and the idle gold can be put
to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by
which the Gold /Silver can be brought to the market. Such ideas will have a win
- win situation for all.

However, if this
ban is imposed then, one person who will surely benefit with this action is the
“common man”, as gold coins will become cheaper. Usually people who buy gold
coins from banks are charged a margin on around 3% if this ban is imposed then
customers will start buying from the bullion dealers and other jewelers who
don’t charge such high margins. Hence coins will be available to them at
comparatively low rates.

However this
move is still in its planning stage and no decision has been taken so far.